By Christopher Alessi
LUDWIGSHAFEN, Germany--Strong growth in BASF SE's core chemicals
business allowed the German company to post a 25% rise in net
profit for the fourth quarter, even as the global plunge in oil
prices sharply cut into earnings at its oil and gas division.
The world's largest chemicals company said net profit for the
three-month period ended Dec. 31 was EUR1.42 billion ($1.59
billion), compared with EUR1.13 billion a year earlier. Analysts
had predicted a net profit of EUR922 million, according to a recent
poll by The Wall Street Journal.
Sales declined 0.6% to EUR18.05 billion, damped by falling sales
prices due to low oil prices. The company's closely watched
earnings before interest and taxes before special items rose 2.8%
to EUR1.46 billion, bolstered by the basic chemical and
agrochemical divisions.
EBIT before special items for basic chemicals, which includes
petrochemicals and monomers, rose 13.7% to EUR580 million, driven
by high margins for steam cracker products in North America.
Agrochemical EBIT before special items jumped 83.6% to EUR123
million, helped by higher prices in North America and a stronger
U.S. dollar.
But fourth quarter EBIT before special items at the oil and gas
business plummeted 40% to EUR347 million, a direct result of the
global slide in oil since last year.
"A year ago, no one could have foreseen that the price of oil
would plummet from $110 per barrel to a price as low as $50 per
barrel for Brent crude," said BASF Chief Executive Kurt Bock.
BASF's wholly owned oil and gas division, Wintershall AG,
generates roughly 30% of the group's cash flow. That division faces
an approximate earnings loss of EUR20 million for every $1 decrease
in the average annual price of Brent crude oil, up from a EUR15
million estimate earlier this year, BASF said.
The company said it anticipates a "considerably reduced" EBIT
before special items for Wintershall in 2015. Its forecasts are
based on an expected average oil price between EUR60 and EUR70 a
barrel, compared with an initial estimate of EUR110 a barrel for
last year.
Brent crude, the global oil benchmark, was trading up at $61.20
on Friday, after having fallen close to 50% over the past seven
months. BASF's share price was down around 2.8%, at EUR84.48, in
midday trading on Friday.
However, negative oil price effects could be partially offset by
an expansion of BASF's exploration and production activities in
Norway and Russia, along with plans to restart onshore production
in Libya, the company added. BASF purchased oil and gas assets in
the North Sea valued at $1.25 billion late last year from Norway's
Statoil ASA.
Wintershall, Germany's largest crude oil and natural gas
producer, has also been a casualty of heightened geopolitical
tensions between Europe and Russia over the latter's incursion into
Ukraine. In December, BASF called off an asset swap deal with
Russian state gas group OAO Gazprom, which would have given
Wintershall access to natural gas fields in Siberia. The
dissolution of the deal held back 2014 earnings by around EUR200
million, BASF said.
Shortly after the asset swap collapsed, Wintershall sold back
its 15% share in Gazprom's South Stream pipeline project--designed
to supply natural gas from Russia to Europa via Bulgaria--after
Russian President Vladimir Putin shut it down amid growing
opposition by European leaders.
BASF will continue to operate existing joint ventures with
Gazprom in Europe, including a natural gas trading collaboration,
even though the "political situation is difficult to predict," Mr.
Bock said. "Both companies will continue to make a significant
contribution to secure Europe's energy supply," he added.
At the same time, Mr. Bock said that he was "not very
optimistic" about growth in the eurozone and that BASF would
continue to gear its investments outside Europe, including in the
U.S.
The company earlier this month confirmed plans to build with
Norway's Yara International ASA an ammonia plant at an existing
BASF site in Freeport, Texas. BASF will own a 32% stake in the new
facility, for which total capital investment is estimated to be
$600 million, according to the company.
BASF has also indicated that it would like to invest around $1.4
billion in a new natural gas-to-propylene conversion complex on the
U.S. Gulf Coast, allowing it to exploit cheap shale gas. The
investment, which would be BASF's largest to date, won't be
finalized until mid-2016, Chief Financial Officer Hans-Ulrich Engel
said.
BASF said it expects a slight increase in group sales for 2015
and for EBIT before special items to match the level it achieved in
2014, at EUR7.36 billion. That figure is in line with a reduced
2015 guidance for earnings before interest, taxes, depreciation an
amortization of between EUR10 billion and EUR12 billion that that
company provided in October, Mr. Bok said.
BASF proposed a shareholder dividend of EUR2.8 a share for 2014,
up from EUR2.7 in 2013.
Write to Christopher Alessi at christopher.alessi@wsj.com
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